Norges Bank’s May 2012 Financial Stability report shows that banks have improved their loss-absorbing capacity through earnings retention and by raising fresh equity capital. “Banks should use their solid profits to further strengthen capital ratios in the coming years”, says Governor Olsen.

“European money and credit markets are functioning more efficiently compared with last autumn, although signs of renewed financial market turbulence have emerged recently. The share of long-term funding held by Norwegian banks is still too low, and banks should make use of available opportunities to increase this share. This will strengthen their resilience”, says Governor Olsen.

Developments in the housing market and a continued rise in the household debt burden may in the longer term represent a risk to financial stability.

“The framework for financial sector regulation will be improved in a number of areas over the coming years. The financial sector, both internationally and in Norway, is facing challenges. Until the new framework is fully in place, banks should be required to meet a minimum Common Equity Tier 1 capital ratio of 9 percent after application of the transitional floor,” says Governor Olsen.